An Analysis of Board of Director Appraisal Disclosures in Australia and the United States

Abstract

Appraisals of boards of directors are now well established and viewed as important contributors to the effectiveness of boards. Because board appraisal practices vary between companies and the benefits of an appraisal will only be obtained where an appropriate practice is followed, there is significant interest in the board appraisal practices adopted by companies. The authors first outline the benefits and challenges of board appraisals and identify the key features of an effective board appraisal. They then present the results of their study of how board appraisals are conducted in Australia in relation to large and small listed companies and compare the findings with the board appraisal practices of US Fortune 100 companies.The results of the study show that the largest Australian listed companies outperform smaller listed companies on nearly all measures relating to the quality of board appraisals, including: the breadth of subjects evaluated, how often the appraisal is conducted, how often the appraisal is externally facilitated, the breadth of techniques used to gather data when conducting the appraisal, and the level of detail in the disclosure of the results of the appraisal. No stark differences emerge when comparing both groups of Australian companies with the largest US companies, with the exception that the largest Australian companies performed significantly better than the US companies when it came to the frequency of externally facilitated appraisals.

Keywords: director appraisal; board appraisal; corporate governance